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Rep. Grove takes pension reform plan before House committee

Bill would give cities an option to pay down unfunded liabilities, Grove said

By Hannah Sawyer

hsawyer@ydr.com @HsawyerYDR on Twitter

Updated:
01/16/2014 09:30:29 PM EST

A municipal pension reform plan sponsored by Rep. Seth Grove, R-Dover Township, came under scrutiny Wednesday during hearings at a House committee session in Harrisburg.

Grove is the primary sponsor of House Bill 1581, which has been touted as a way to alleviate mounting pressure on municipal pension plans and as a plan that allows local governments to pay down unfunded liabilities.

Testifying before the Local Government Committee, Grove said his bill would include a cash balance plan that would eliminate spikes in spending and require pensions be calculated on base salary only. Currently, overtime hours and unused sick and vacation time are often included in base-pay calculations, which leads to a jump in pension spending.

Under Grove's bill, employees would be required to contribute between 6 and 9 percent of their salary, while employers would pay 4.5 percent.

The bill also allows for a low, guaranteed return on investments, but municipalities could redirect additional interest earned to pay down debt accrued on underfunded plans.

If passed, it would affect only the pension plans of new police and fire department employees, Grove said. Plans for current employees would be frozen at their present rate, and retirement benefits would be removed from the collective bargaining process.

Representatives of police and fire employees voiced heated opposition to the plan during testimony.

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"We don't see anything balanced about it," said Les Neri, president of the Fraternal Order of Police, a state union. "We see it as a way for municipalities to reduce their costs.

"This hits us hard because I have men and women putting their lives on the line," he said.

York Mayor Kim Bracey supported the legislation when Grove introduced it in April 2013.

The city's pension plans were rated at "moderately distressed" in 2012, and Michael O'Rourke, York's business administrator, said in an email that they remain at the same level.

Pensions for the city's fire and police personnel are currently being funded at about 60 percent, he said. Plans for non-uniformed employees are being funded at about 90 percent.

Act 44, which legalizes minimum municipal payments and allows the city to fund its pensions at a reduced rate of 75 percent, is set to expire in the coming year. O'Rourke said that the city does not yet know what increase in payments its expiration will cause.

The difference between plans

Traditional pension plans, commonly known as defined benefit plans, offer a series of payments to an employee for life beginning at retirement, according to the U.S. Department of Labor website.

Cash balance plans also offer benefits in a series of payments, but those payments are based on a stated account balance. The plan gives the option of taking payment in a lump sum payout, as well.